Arizona Charitable Donations Tax Credits

Individuals have the opportunity to claim as many as three different charitable donation tax credits on their Arizona income tax returns.    There is generally no out-of-pocket cost since taxpayers receive a dollar-for-dollar Arizona tax credit for qualified donations to the following organizations:

1)      Charitable organizations that provide help to the working poor.  These charitable organizations provide 50% of their budget to Arizona residents who are considered low-income individuals.  For a list of qualified organizations, visit the Arizona Department of Revenue website at www.revenue.state.az.us/welflist.htm.

2)      School tuition organizations that provide tuition assistance through grants or scholarships to students who choose to attend private primary or secondary schools in Arizona.

3)      Public and charter schools for extracurricular activities that require a student paid fee.

The maximum allowed tax credit for 2001 is as follows:

Taxpayers may claim all three credits in any one year.  It is important to understand that these tax credits apply to the total Arizona tax liability, and not the amount owed on the taxpayer’s return.  If the taxpayer’s total tax liability is less than the donation, the taxpayer will carry the excess donation amount forward for up to five years.  For example, if you donate $700 in 2001 and your total Arizona tax liability in 2001 is $500, you will not receive a refund from the state, but you will be allowed to use the $200 credit to offset tax in future years.

In addition, for federal income tax purposes, the donation will be treated as a tax deduction eligible for tax savings at the taxpayer’s marginal federal income tax rate if the taxpayer itemizes deductions on Schedule A.

Please be aware that in order to take the total $200 credit for contributions to organizations that help the working poor, the taxpayer’s total charitable contribution for the donation year must exceed the taxpayer’s total charitable contributions in the baseline year by $200.  Arizona statutes provide that 1996 is the baseline year unless the taxpayer did not itemize federal deductions and deduct charitable contributions in 1996. The baseline year then becomes the first taxable year after 1996 in which the taxpayer itemizes deductions and deducts charitable contributions.  For example, if the taxpayer’s total contributions in 1996 were $1,000, then contributions to all charities (including the $200 donation to organizations that help the working poor) in 2001 would have to be at least $1,200 to get the full benefit of this credit.